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Telegraph
11 hours ago
- Business
- Telegraph
The experts are being proved wrong about the Trump economy
Here is a tale of two economies. One is the US, which, like some kind of levitational trick performed by an Indian swami, seems to defy gravity, together with almost anything else that is thrown at it. Hardly anyone thought the US economy could withstand the post-pandemic surge in interest rates from virtually zero all the way up to 5.33pc without inducing a recession, yet here we are nearly two years after the Federal Funds Rate hit its peak, and there is still little sign of a significant downturn. Similarly with Trump's tariff threats. Most economists thought they would be as damaging to the US as those they targeted, with rising inflation undermining household spending, but thus far apparently not. It's true that Trump's protectionism is proving less severe than initially threatened, but the tariffs are still substantial by historical standards – slightly bigger, for instance, than the infamous Smoot-Hawley tariffs of the Great Depression. The same might be said of the crackdown on immigration. Without a constant infusion of migrant labour, crops would be left unharvested and fruit would rot on the tree, it was widely said. Similarly, the entire low-wage economy, from meatpacking to Uber drivers, would grind to a halt. No doubt instances of these afflictions can be found, but in aggregate there's little sign of the much anticipated damage in the wider economic data. It may be that all these matters are on a long fuse. It is still early days, and a slowdown may be just around the corner. Goldman Sachs, for one, has been steadily reducing its forecast of US growth for this year, and at the last count was down to just 1.1pc, with a high risk of outright recession. But Goldman's gloom is not reflected in the stock market, which continues to hit new records. To date at least, the economic establishment has been largely wrong-footed, prompting Trump to gleefully declare that 'the Fake News and Experts were wrong again. Tariffs are making our country BOOM'. The situation is similar in some respects to the economic debate that surrounded Brexit here in the UK. Once the immediate shock of the vote to leave the EU had worn off, the economy carried on much as before; the more gory predictions of serious economic harm turned out to be ill-founded. The big lesson, perhaps, is that abrupt changes in trade policy are not as significant as imagined in fundamentally shifting the dial in large and diverse advanced economies with high dependence on service-based industries. The other country in my tale of two economies is the UK, which has indeed slowed markedly, and may even have contracted in the second quarter. As it is, the economy shrunk by 0.3pc in April, and again by 0.1pc in May, according to initial ONS estimates. Here in Britain, the problem is almost entirely self-inflicted. Despite an autumn Budget which in overall terms was strongly expansionary, the decision to raise employer National Insurance contributions and other forms of business taxation has dealt a hammer-blow to business confidence. In anticipation of harder times to come, consumer confidence has also sagged. Meanwhile, rising concern over how the Labour Government might seek to fill a ballooning shortfall in the public finances is causing capital flight and other forms of precautionary behaviour among the asset-rich. Nobody can say that Rachel Reeves, the Chancellor, wasn't warned about the likely counterproductive effects of her tax raid. More tax threatens to spawn less tax. Shortly after the last Budget, she told business leaders that she would not be coming back with more tax rises and more borrowing. It is now abundantly clear that she will be. That she is unlikely to be able to keep that promise has no doubt instructed her more recent refusal to rule out wealth taxes as a way of filling the fiscal hole. She is wary of further tying her hands. Yet her ambivalence has served only to heighten anxiety among those who might be targeted, further fuelling evasive action. Even if she eventually does nothing, failure to rule out further wealth taxes has already inflicted considerable damage. All this against a backdrop of still elevated inflation, which at the last count remained stubbornly adrift of target at 3.6pc, slightly up on the month before. This is unlikely to deter the Bank of England's Monetary Policy Committee from further trimming interest rates at its meeting next week. Even so, the combination of nil growth with still-higher-than-acceptable inflation is proving particularly awkward for policymakers. The Bank is under no obligation to help the Government through an economic mire which is almost entirely of its own making. Back in the US, there are two main reasons that the economy is continuing to hold up relatively well. One is the continuation of massive fiscal stimulus. This is in fact just an extension of the Biden-era stimulus, only done in a different way – via the tax side of the ledger rather than the spending side. Trump has taken to blaming Biden for any slight hiccup in progress, but in truth it may be the other way around: that the economy is continuing to enjoy the tail-end of the Biden boom. The other major prop is all the excitement around artificial intelligence (AI). This has prompted record levels of investment by Silicon Valley in data centres, supercomputing and other aspects of the developing technology. It's a bubble, undoubtedly, which also helps explain continued buoyancy in the stock market, sustained as it is by the surge in AI valuations. But for now, the music plays on, and as Tim Congdon of the Institute of International Monetary Research points out, the monetary indicators support the idea of continued growth. This might be further enhanced by plans to ease back on so-called Basel III capital controls, encouraging banks to load up with US Treasuries and further expand credit provision. Combined with what is already a plainly unsustainable fiscal trajectory, it might be thought an accident waiting to happen, and no doubt it is. But today is not that day. In any case, the idea that the US economy is careering towards some kind of Trump-induced recession – brought about by a combination of protectionism and policy uncertainty – is proving to be not quite right. In fact, the economy is showing a remarkable degree of resilience to the president's iconoclasm, and actually might in some ways be benefiting from it. Thanks in part to the revenue raised from tariffs, the Federal budget actually slipped into surplus in June. Even if something of an anomaly, it nonetheless makes you think. Sadly, the same cannot be said of the UK, where the economy is becalmed even as government borrowing continues to swell ever higher.
Miami Herald
a day ago
- Business
- Miami Herald
Veteran Fed watcher drops bold message about future interest rate cuts
One thing we know for sure: Interest rates will come down. The question is when. Don't miss the move: Subscribe to TheStreet's free daily newsletter The Federal Reserve's 12-member monetary policymaking panel is known as the Federal Open Market Committee. It meets July 29-30 to vote whether to cut interest rates for the first time this year. Many economists and market analysts expect the FOMC to hold interest rates steady. But expectations are growing that the next rate cut will come sooner than later. Image source:The implications of an interest rate cut are substantial for every American consumer, business and investor. It will lower the cost of borrowing money. Recent FOMC meetings have seen the Fed maintain the Federal Funds Rate within its target range of 4.25% to 4.50%. This "wait-and-see" approach, per Federal Reserve Chair Jerome Powell, reflects a cautious stance in a post-pandemic economy marked by persistent inflation and ongoing geopolitical uncertainties, including the impact of tariffs. The FOMC makes all decisions regarding the appropriate position or "stance" of monetary policy to help move the economy toward these congressionally mandated goals of maximum employment and price stability. Related: White House tours Fed seeking fraud It uses interest rates as a tool to manage that dual mandate. The Federal Funds Rate is the price the Fed charges U.S. banks to borrow money overnight. This in turn sets the pace for short-term costs of borrowing money like credit cards and auto and student loans. The 10-year Treasury Bond yield is the benchmark for longer-term interest rates like the 30-year fixed mortgage, currently hovering around 6.8%. President Trump, who made a rare visit to the independent central bank on July 24, has been pushing for a 3% rate cut for weeks. He and his White House team say the current interest rates are holding back the American economy from robust growth, especially in the housing market. Three things to watch as the FOMC meets The CME Group's widely respected FedWatch tool says there is a 3.1% chance the FOMC will cut the Federal Funds Rate this week. Robert Conzo, CFP, is the CEO and managing director of The Wealth Alliance, a registered investment advisory firm. More Economic Analysis: GOP plan to remove Fed Chair Powell escalatesFederal Reserve official gives green light to July rate cutTrump deflects reports on firing Fed Chair Powell 'soon'Former Federal Reserve official sends bold message on 'regime change' He offers the following "three things to know" for consumers and businesses ahead of the FOMC meeting: The consensus view is that the Fed will hold interest rates steady in its July meeting; however, there seems to be a push for a signal cut of .25% among economists, and even some Fed board members. We will be watching whether the July hold is unanimous, or if one or two members week is important for the Fed's direction moving forward, which may be influenced by a multitude of data coming out this week, including second-quarter earnings, core personal consumption expenditures for June (the Fed's preferred measure of inflation), and the U.S. jobs report for the month of July. These key metrics can help determine future interest rate tariff negotiations and benign inflation concerns bode well for future rate cuts. Trump recently announced a framework for the EU's tariff policy; this, coupled with moderating CPI and PCE, are becoming a battle cry for those who want a signal cut of .25%. Should the Fed surprise markets with an interest rate cut this week, the impact on consumers would be significant and generally positive, primarily by lowering borrowing costs. Related: Former Fed Chair sends stern message on economy, Fed Here's a breakdown of key areas: Mortgage Rates: While fixed-rate mortgages don't directly track the Federal Funds Rate, a Fed cut often influences the broader interest rate environment, including long-term Treasury yields that impact mortgage rates. Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are more directly linked and would likely see their interest payments decrease, offering financial relief to homeowners. This could also provide a much-needed boost to the housing market, making homes more Card Debt: For consumers carrying variable-rate credit card balances, a Fed rate cut would typically lead to lower interest charges. This can translate into an opportunity to pay down debt more Loans: Financing new and used car purchases would also become cheaper, potentially stimulating demand in the automotive sector. Savings Accounts and CDs: Sorry, savers, you're likely to see less favorable returns on savings accounts, money market accounts, and certificates of deposit (CDs). They tend to fall when the Fed cuts rates. Overall Economic Activity: Lower borrowing costs encourage businesses to invest and expand, potentially leading to job creation and wage growth. For consumers, increased disposable income from lower debt payments might translate into higher spending on goods and services, a key driver of economic growth. Related: Tariff uncertainty resets inflation, July interest rate cut bets The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
The Star
2 days ago
- Business
- The Star
Ringgit strengthens broadly on cautious trade sentiment
KUALA LUMPUR: The ringgit opened marginally higher against the US dollar in early trade on Monday amid cautious sentiment, as traders awaited clarity on a possible extension of the trade truce between the United States (US) and China, said an analyst. At 8 am, the local note stood at 4.2110/2310 versus the greenback, compared with Friday's close of 4.2195/2245. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that earlier, the US and the European Union (EU) had agreed to a 15 per cent tariff on most EU imports, while most US imports would face zero tariff under the deal. He said markets are also closely watching the upcoming US Federal Open Market Committee (FOMC) meeting scheduled for July 29 and 30, with consensus expecting no change to the Federal Funds Rate, currently at 4.25 per cent to 4.50 per cent. "Based on recent developments, most countries appear accommodative in offering favourable terms to the US. It remains to be seen whether this will effectively narrow the trade balance in the near term. "However, the cost of doing business in the US is likely to rise, and it also appears the US may be relying on a weaker dollar to boost export competitiveness. "Against this backdrop, we expect the ringgit to remain within a narrow range of RM4.22 to RM4.23 versus the US dollar,' Mohd Afzanizam told Bernama. At opening here, the ringgit traded mostly higher against a basket of major currencies. It rose against the Japanese yen to 2.8499/2863 from 2.8529/8565 at Friday's close, and strengthened versus the British pound to 5.6600/6869 from 5.6786/6853. However, it eased slightly against the euro to 4.9521/9757 from 4.9507/9566. Against regional peers, the ringgit was also firmer. It advanced against the Indonesian rupiah to 258.0/259.3 from 258.5/258.9 on Friday, and gained versus the Singapore dollar at 3.2878/3039 from 3.2937/2978. The local note also strengthened against the Thai baht to 12.9809/13.0546 from 13.0268/0478, and edged up against the Philippine peso to 7.37/7.41 from 7.38/7.40 previously. - Bernama
The Star
3 days ago
- Business
- The Star
Ringgit likely to trade within RM4.22-RM4.24 vs greenback next week ahead of Fed decision
KUALA LUMPUR: The ringgit is expected to hover between RM4.22 and RM4.24 next week as the US Federal Reserve (Fed) is anticipated to maintain its policy rate, said an analyst. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said this outlook is tied to the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for July 29-30, 2025. "Based on the interest rate futures market, the Fed is likely to keep the Federal Funds Rate steady at 4.50 per cent. Technical indicators suggest that the US dollar-ringgit exchange rate is currently in a neutral zone," he told Bernama. Meanwhile, SPI Asset Management managing partner Stephen Innes expects the ringgit to trade within a relatively narrow range of 4.2080-4.2280, with trade-related headlines and external sentiment continuing to drive short-term direction. On a Friday-to-Friday basis, the ringgit ended the week better against the greenback, closing at 4.2195/2245 versus 4.2410/2455 previously. However, the local note traded lower against a basket of major currencies. The ringgit depreciated vis-à-vis the Japanese yen to 2.8529/8565 from 2.8517/8549 and declined versus the euro to 4.9507/9566 from 4.9336/9388 at the end of last week. However, it gained against the British pound to 5.6786/6853 from 5.6999/7060 last Friday. Against ASEAN currencies, the ringgit trended higher. The local note firmed against the Singapore dollar to 3.2937/2978 from 3.3027/3065, strengthened versus the Thai baht to 13.0268/0478 from 13.3027/3065, rose versus the Indonesian rupiah to 258.5/258.9 from 260.2/260.6 previously, and improved against the Philippine peso to 7.38/7.40 from 7.41/7.43 last Friday. - Bernama
New Straits Times
3 days ago
- Business
- New Straits Times
Ringgit likely to trade within RM4.22-RM4.24 vs greenback next week ahead of Fed decision
KUALA LUMPUR: The ringgit is expected to hover between RM4.22 and RM4.24 next week as the US Federal Reserve (Fed) is anticipated to maintain its policy rate, said an analyst. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said this outlook is tied to the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for July 29–30, 2025. "Based on the interest rate futures market, the Fed is likely to keep the Federal Funds Rate steady at 4.50 per cent. Technical indicators suggest that the US dollar-ringgit exchange rate is currently in a neutral zone," he told Bernama. Meanwhile, SPI Asset Management managing partner Stephen Innes expects the ringgit to trade within a relatively narrow range of 4.2080–4.2280, with trade-related headlines and external sentiment continuing to drive short-term direction. On a Friday-to-Friday basis, the ringgit ended the week better against the greenback, closing at 4.2195/2245 versus 4.2410/2455 previously. However, the local note traded lower against a basket of major currencies. The ringgit depreciated vis-à-vis the Japanese yen to 2.8529/8565 from 2.8517/8549 and declined versus the euro to 4.9507/9566 from 4.9336/9388 at the end of last week. However, it gained against the British pound to 5.6786/6853 from 5.6999/7060 last Friday. Against Asean currencies, the ringgit trended higher. The local note firmed against the Singapore dollar to 3.2937/2978 from 3.3027/3065, strengthened versus the Thai baht to 13.0268/0478 from 13.3027/3065, rose versus the Indonesian rupiah to 258.5/258.9 from 260.2/260.6 previously, and improved against the Philippine peso to 7.38/7.40 from 7.41/7.43 last Friday.
